Why millennials rent: What do you think?

Higher mortgage rates, a spike in home prices and tougher credit rules have combined to stall the housing recovery, especially for younger would-be buyers.

The nation's homeownership rate may be falling, but the dream of homeownership isn't exactly dead. It is just being postponed, especially among the younger millennial generation. A far stricter credit environment is keeping them outside of homeownership for now, and as investors move out of the market, that is actually stalling the housing recovery.

"Readings on housing activity—a sector that has been recovering since 2011—have remained disappointing so far this year and will bear watching," remarked Federal Reserve Chairman Janet Yellen in testimony Wednesday.

In addition to credit, millennials' attitudes toward renting are far different than their parents', and they have very vivid memories of the housing crash. In just the past year, their views toward homeownership have changed dramatically.

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"At the top of that list is concern about credit. Do I have a good enough credit score to get a mortgage? But then as we move down list, next one is qualifying for a down payment and closing costs and having enough income is No. 3. So it's really the basics of qualifying for a mortgage that these younger renters are concerned about," said Steve Deggendorf, a finance executive at mortgage giant Fannie Mae.

Fannie conducted a survey of current renters and found distinct changes in why renters choose to rent rather than own in just the one year between 2012 and 2013.

In 2012, 35 percent of renters surveyed said they were renting in order to make themselves financially ready to own; that dropped to just 26 percent in 2013.

More renters now say they rent because it is a more affordable option—this despite the fact that several other reports have shown that in most housing markets, it is cheaper to own. This may be due to the fact that those rent versus buy reports look at monthly payments and income but not at what it actually takes to buy the home. Lenders today are requiring larger down payments, and mortgage insurance premiums have gone up.

"Younger renters have told us by a vast majority that they eventually want to own a home, but the road to get the mortgage financing is going to be pretty difficult," added Fannie Mae's Deggendorf.

Younger Americans, referred to as the millennial generation, were hit disproportionately hard during the recession, and their employment numbers are still the weakest of all workers.

"Young-adult employment still isn't halfway back to normal: before the bubble, their employment-population ratio hovered in the 78-80 percent range," noted Jed Kolko, chief economist at Trulia. "Having a job matters for housing. Just 12 percent of employed 25-34 year-olds live with their parents, versus 20 percent of 25-34 year-olds without jobs."

Social changes are taking hold among millennials as well. The number of young renters who say they rent in order to have more flexibility in future choices jumped last year. That share went from 16 percent in 2012 to 19 percent in 2013.

"A lot of younger renters when they get out of college, they don't want to settle anywhere, they want to find a job somewhere, stay there for a year, year and a half, and today a lot of younger people want to move around, even if not moving from city to city they are moving around the city," said Jonathan Eppers, CEO of RadPad, a company that facilitates the rental process through a mobile app.

Eppers, 31, is a renter himself.

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"A lot of us want to rent, because when you come out of college today you're strapped with a lot of debt and the last thing you want to do when you come out of college with all this debt is fork out more debt to buy a house," said Eppers.

Younger renters consider down payment and credit score to be top obstacles to getting a mortgage, according to the Fannie Mae survey, and the presence of student loans exacerbates down payment and existing debt concerns. The less wealthy these younger renters are, the more pessimistic they are about their ability to get a loan. The majority of younger renters report having insufficient assets to cover a 5 percent down payment plus closing costs on a typical starter home, according to the survey.

Attitudes have also shifted along with credit availability. There is no longer a stigma to renting versus owning, among millennials at least. While previous generations preferred gated communities, young people today want to live closer to each other in urban cores. They also want amenities and work to be nearby or at least easily accessible by public transit. That is why rental development is surging now and rental demand continues to climb.